Altech Chemicals (ASX:ATC) Presentation, FNN Online Investor Event, November 2020

Company Presentations

Altech Chemicals Limited (ASX:ATC) Managing Director Iggy Tan provides an overview of the company, discussing its high purity alumina (HPA) plant, the market for HPA, market differentiation, the company's plants, and financials and outlook.

Thank you Clive, and welcome everybody. Altech chemicals is an Australian company. We're listed on the Australian stock exchange as well as the Frankfurt Stock Exchange.

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Our vision is to build a 4,500 tpa High Purity Alumina Plant. Now what's alumina?

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Alumina is actually aluminium oxide. And what's fascinating about it is that Sapphire in the earth crust is formed from alumina, under intense pressure and temperature. And the only reason that the Sapphire is a blue colour is because of impurities that create that blue colour. But today, we make synthetic Sapphire for our watch faces, our camera lenses, and substrates for LEDs, and we can't afford to have a blue tinge on it, we have it crystal clear.

So we have to start with high purity alumina, our product is a 99.99% purely material. And how does it compare to the Smelter Grade Alumina that Alcoa's sells? Well, that's pretty pure, 99.5%, but you can't actually use it to make synthetic stuff on.

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So typical of these high-purity materials, the price is exponential. So Smelter Grade Alumina might be worth $400 per ton. It's 3Ns might be worth 6,000 to $9,000 a ton, but High-Purity Alumina is worth $15,000 to $50,000 a ton.

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The two industries that are driving the growth of high-purity alumina is in the LED industry, as well as the lithium ion battery industry. So LEDs are light emitting diodes, and they're actually semiconductors and like all semiconductors, they need a wafer substrate. So what they use is Sapphire wafer substrates. They buy high-purity alumina, they melt it, they'd make Sapphire crystal that core it out using diamond cause, slice it up into wafers and that's the building blocks of every LED. So you can imagine the demand going forward just from LEDs. The other area of growth is in the lithium ion battery industry. Lithium ion batteries uses high-purity alumina in the separators as well as in the cathode and anode.

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So, you can see a demand for LEDs is sweeping the world and the reason for that is uses 1/6 the amount of electricity, very efficient lighting.
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In a typical battery, you see these separators, they're typically made of polyethylene and they start to shrink when the battery starts to heat up. By applying high-purity alumina in these separators it maintains battery safety. So high-purity alumina is critical for lithium batteries going forward.

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This is a typical battery and you can see high-purity alumina now being added in the separator. It's now been added in the cathode as well as the anode and that increases the energy density of these batteries.

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High-purity alumina is used in many different applications as well in the semiconductors as high performance catalyst, a high purity grinding media, and so on. So it's not a new material, it has been around for many, many decades.

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This is a typical demand curve of high-purity alumina looking today. There's about 30,000 tons per annum being used. It's expected to climb to 270,000 tons per annum by 2030, or driven from the LED sector and the lithium ion battery sector.

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Now here comes up critical differentiating point. These are current High-Purity Alumina producers that typical chemical companies like Sumitomo Chemicals, Sasol, Nippon Light as well.

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Now let's have a look at how they make High-Purity Alumina today. Remember I said there's too much impurities in that Smelter Grade Alumina, they can't use that. Well, they use Aluminium Metal as their feedstock. They buy Aluminium Metal very expensive feedstock. They dissolve it and then make High-Purity Alumina from that. You're looking at that and you go, well, that doesn't make sense because it already was Alumina in the first place.

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Where does that come from? It comes from the Bauxite industry. It makes Smelter Grade Alumina. They sell it to the element refineries that add a lot of electricity and costs and these guys go back to Aluminum. It sort of doesn't make sense. So my question to you is that, if you have technology that can by pass, the Aluminium Metal stage, are you going to be disruptive to the industry and are you going to be the lowest cost producer? So essentially, that's our technology.

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We go from the old to the alumina in one single step, but we don't start with Bauxite, we start with Kaolin. Now, Kaolin is actually a highly weathered material.

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Now Kaolin is highly weathered. Kaolin is used as a whitening agent for paper, ceramics, cosmetics because of its whiteness. We use Kaolin as our Aluminium feedstock. This project is in Meckering, Western Australia, it's ready to date. We've got mining, approvals, environmental approvals, and this material is so soft that we can free dig this and we put it into sea containers and then ship it to our propose operation in Malaysia.

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The operation in Malaysia, why did we think that? We're on the bottom end of Malaysia, right across the road from Singapore and it's all about costs. If we had to build this plant in Australia, our electricity would be 26 cents a kilowatt, in Malaysia, it's about 10 cents a kilowatt, either hydrochloric acid is instead of $350, it's $120 in Malaysia. And in addition, we have a 10 year tax-free window to build the plant in Malaysia.

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This is what the plant looks like. We propose pure German engineering. The capital cost is about $300 million US.

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And if you look at the chemistry itself, it's a very simple chemistry that has been around since the early 1900s. The Swiss came up with the technology and we applied this open chemistry to our deposit in Australia and we find that it makes High-Purity Alumina very efficiently at a third of the cost.

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As I mentioned, and we have nine patents that protects our technology and one of them is been granted.

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So where do we sit on the cost curve? Well, we are actually a third of the cost of the current producers. Why are we so cheap? Well, we don't have to buy Aluminium metal. We own the feed stock in the ground for free, it's just cost of extraction. We also have a process where hydrochloric acid on many reactants can be recycled and we're in a low cost country like Malaysia.

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We are also been recently accredited as a green project. Well, why green? Well, essentially, we use 46% lower greenhouse gases to make one ton of HPA compared to our competitors. Why? Essentially, we don't use Aluminium metal where it has a lot of greenhouse gases with electricity and so on. We also use 41% less energy to produce that one time of HPA. Well, this is important for us because we are finalising our debt prices to the list of green bond prices. And I'll talk about that in a second.

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We have a 10 year exclusives off-take with Mitsubishi corporation. As you know, all the chemicals that go into Japan are generally bought by these traders and then sold to their customers. We are exclusively off-take with Mitsubishi for 10 years, and we haven't fixed the price because if you look at the supply and demand curve, we think that there's going to be increased pressure on pricing, and we have structured that the price is that the prevailing price.

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One of the risk of any project is execution and you've seen a lot of examples where there's cost blowouts and delays. Well, we've manage that risk by teaming up with a very large German recall SMS group.

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Where they will give us a lump sum turnkey contract. So the price is fixed. They will also give us completion guarantee, so that if the project is late, they will have daily payments on that. We also have a throughput and quality guarantee. They will guarantee that the product will meet the Mitsubishi quality specifications. They will also commit a $15 million of equity of which we already received $6 million. So they're also a shareholder.

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Now the economics of the project, this is the FID study that was done. The economic shows that the NPV for the project is a half a billion US dollars. The payback is just under four years. At its full rate, it generates an EBITDA of US$76 million per annum, free cash. The capital cost is roughly $300 million. The operating cost is $8.50 a kilogram and in our financial model, we assume about $27 a kilogram.

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In a funding process, next slide, out of that $400 billion, including some extra costs, we have a secured a $119 million of senior debt from KfW IPEX Bank. It's essentially a German bank of which happened $170 million is export credit finance. Well, what does that mean? It's actually secured by the German government to support this exporters, because 50% of our plant is actually German equipment and even our EPC contractor, SMS group is also German. So consequently, that loan of $170 million is something like liable plus two and a half percent and the period is about 14 years. Probably the best debt you can get in the world today, but it took us 18 months of extensive due diligence by the German government.

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So the project is so cash rich, we can put more debt onto it. So we're targeting $90 million of mezzanine debt from Macquarie Bank. We have been going through this process and we're now also running a separate process, which is the list of green bonds process.

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As I mentioned, the project has been credited as a green project, we're targeting to raise a US$100 million of project debt by the green bond process. And then we have just commenced that and roughly by quarter two, next year, we will finish this is process.

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So instead of waiting for all the finance to get in place, we have commenced, the construction process in Malaysia. And the reason for doing that is to remove some of the greenfield risk on any project. So any project, there's always a risk of where you get onto the project, you've got the environmental approvals, you've got the permitting approvals, operating license. We've got all that and we've completed stage one and stage two of the construction phase.

Next slide, as you can see, we've been on the ground.

Next slide, please. On the ground, we've cleared the ground, we've built retaining walls, fencing. We know the ground conditions.

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Next, next slide. That's what the workshop looks like and then next slide, we've also built a substation as well. So we will carry on with the construction phase and so on. Now where's the future of the next plant? Well, a lot of people have asked us, if the demand is actually there, where would you build the next plant? Well, we're going to build this in Europe.

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And the reason for that, there's a very strong focus of EVs in Europe and following that battery industry in Europe. So it's all driven by the 2020 EU CO2 emissions standards of 95 grams per kilometre. All car manufacturers need to average below 95 grams per kilometre. So in order to do that, half their fleets have to be EVs. In order to do that, they have focused that all their materials need to come from Europe. So VW is retooling something like sixteen factories, and more and more materials or EV batteries are now being sourced from Europe.

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Our next plant will probably be in East Germany, in the state of Saxony. We have an option agreement to purchase the site and we've commenced the feasibility study. Now in closing, there was exciting news.

Next slide, when we announced the anode grade HPA.

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What essentially that is, is that we tiling a High-Purity Alumina specifically to coat graphite particles in the lithium battery. So I'm not sure whether you know, but in any lithium battery there's called a ‘first cycle’ lithium loss. What that means is that 8% of the lithium is lost before you even as a customer, get that battery. And the reason for that is that the lithium coats the graphite materials and becomes inactive. So the challenge is that if you can release that 8% of lithium in the first charge, the battery can be 8% higher density or lower costs, and there will be increased battery life. Well, we have just announced technology that we can coat graphite material with High-Purity Alumina, that can actually remove that first cycle of lithium loss.

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You see a typical graph of a battery life. So at the 80% mark, you have a battery life, by reducing this first cycle loss, the life of the battery increases.

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High Purity Alumina is in a very exciting space. It's very similar to the lithium industry about 10 years ago. And my background was in the lithium industry. I was the managing director of Galaxy Resources, and I build the Mt Cattlin plant and the lithium carbonate plant in China. Exactly the same fundamentals in High-Purity Alumina. So thank you, Clive.


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